Friday 06/11/26

Wall Street sheds $3.2tn as Democratic midterm sweep triggers brutal AI rout  (Financial Times, Kate Guguid, George Steer, Harriet Clarfelt, Ian Smith and Emily Herbert) highlights ongoing market reaction to the midterm results as the NASDAQ fell particularly heavily while the S&P Composite 1500 index, a very broad index of America’s publicly traded companies, saw its biggest fall since the start of the millennium. Japan and Korea tech stocks sink amid global AI rout (Financial Times, Leo Lewis, Song Jung-a and William Sandlund) shows that this weakness spread to Asian tech stocks while European stocks overtake Wall Street following Democratic sweep (Financial Times, Emily Herbert, Ian Smith and Abigail Tobias) highlights just how badly US tech stocks have cratered because European stocks have now outperformed their American cousins so far this year! The Stoxx 600 is now up 10.5% versus the S&P 500 being up by 8.6% in comparison. Will Democrats stall the AI boom? (Financial Times, Myles McCormick, Michael Acton, Martha Muir and Stephanie Findlay) reflects on the tech intentions of the newly-emboldened Democrats. Goldman Sachs reckons that states where Democratic lawmakers could further restrict data centres account for around 45% of planned capacity in the US. Although the Democrats aren’t specifically anti-AI per se, it’s thought that they are less gung-ho about foisting it on local communities without decent oversight. Some want a “full-on pause” of the frontier development of AI models, some want a moratorium on new data construction and others are calling for an end to the tax breaks and subsidies that AI groups have been getting so that they “pay the full cost of their utilities”. For now, it looks unlikely that the Democrats will be able to pass federal legislation thanks to Trump’s veto power. Neoclouds, major power suppliers and some chip and memory companies may have to lower their demand forecasts to take the result into account, though.

In Bomb Threats Cause Diverted Flights, Emergency Landings Across Europe (Wall Street Journal, Natasha Dangoor and Benjamin Katz) we see that flight chaos spread across Europe yesterday as a suspected bomb hoax campaign grounded aircraft, prompted diversions and even led to the scrambling of jet fighters. This followed e-mails to Rome’s primary airport, claiming to be sent by a fringe ultranationalist Russian group. * SO WHAT? * This seems to be the latest in a string of hacks and threats against infrastructure disrupting the day-to-day across Europe in recent weeks. The intention seems to be to cause damage without physically inflicting it. It seems to be a very cost-effective way of causing maximum economic harm at the moment.

Meanwhile, Nearly 600,000 join latest protests in France (Financial Times, Adrienne Klasa) shows that unrest in France is continuing as protesters hit the streets across the country to demand action on the high cost of living, low salaries and poor public services. This has all been stoked by the unions and resulted in the biggest turnout since the movement started in September. Violence did erupt but it seemed to be largely contained, particularly compared to the looting we saw in the middle of last month. I ask myself the question – how can Marine Le Pen’s Rassemblement National not win in next year’s presidential election?? France is currently in a desperate situation as it tries to shrink its massive debt pile while GDP is going down, borrowing costs are rising and the government just can’t seem to pass a budget.

Vladimir Putin orders seizure of Japan Tobacco’s Russian business (Financial Times, Harry Dempsey) highlights a dramatic move by the Russian president as he just signed a decree late on yesterday to put the assets of the Russian subsidiaries of Japan Tobacco under the “temporary

management” of a local company. * SO WHAT? * This move is particularly notable because the Japanese government is the biggest shareholder of Japan Tobacco. This angered the Japanese but I don’t think that’s going to get them anywhere. It just seems to reflect the worsening relationship between Russia and Japan at the moment…still, you do wonder why Japan Tobacco is still operating in Russia while many other foreign businesses have withdrawn! It is the biggest cigarette company in Russia and Kyiv reckons that it became Russia’s fourth biggest foreign taxpayer, having contributed $182m in tax which represents about a quarter of its operating profit.

Back home, Bank of England raises interest rates to 4%, the first increase for more than three years (The Guardian, Heather Stewart) shows that our central bank raised interest rates from 3.75% to 4% and said that it could go up further from here as it also upped its inflation forecasts considerably for the middle of next year to 4.9% versus 3.2%. Inflation hit 3.5% in September. Bank rate rise ‘puts tracker mortgage trend at risk’ (Financial Times, James Pickford) observes that demand for tracker mortgages, which have enjoyed a boost in uptake over the last few months, is likely to drop off as a result of the latest Bank of England move. Tracker mortgages move in line with the official interest rate so are generally more popular when interest rates are on a downward trajectory and/or when fixed rates are high. We are now in an upward trajectory, which means that mortgage payments for those on trackers are going to rise.

In defence news, Battle-tested European drone maker takes step towards €7bn IPO (Financial Times, Aaoron Kirchfeld, Ivan Levingston and Madeleine Speed) shows that one of Europe’s fastest-growing defence tech companies is preparing for a flotation as it looks to benefit from the surging demand for battle-tested drones used against Russia. Polish defence company WB Electronics is looking at a potential IPO in Warsaw next year and could be worth between €5bn and €7bn. * SO WHAT? * Defence start-ups are hot property at the moment. Portugal’s Tekever and Germany’s Quantum Systems and Helsing have seen their valuations boom in contrast to the more established players like Franco-German tank maker KNDS, Rheinmetall and CSG. WB Electronics maintains that it still hasn’t reached a final decision yet re an IPO but it certainly seems that it’s heading that way.

Further to what I said above, Rheinmetall shares fall 17% as it cuts sales forecast after deal delay (Financial Times, Laura Pitel) shows that the share price of the German tank and artillery maker cratered badly after the company cut its sales forecast for the second time this year due to delays on a €12bn megadeal to provide Boxer armoured vehicles to the German military. This comes after another deal, worth €15bn, to build six frigates was scrapped. I guess this just goes to show that although defence demand is clearly there, production capacity remains a major limiter.

In Renewable energy groups boosted by ‘clarity’ of US election results (Financial Times, Rachel Millard) we see that, in contrast to the tech sell-off we’ve seen since the midterms, shares in renewables companies including Ørsted and others have strengthened on the hope that they might get a look-in after Trump’s constant browbeating. Ørsted, EDP Renewables, First Solar and NextEra Energy all saw their share prices rise. Whether that will continue is another matter – but for now, investors seem to be hopeful!

AI backlash threatens trillion-dollar data centre boom, say tech leaders (Financial Times, Jason Ma and Rachel Rees) shows that AI tech leaders are increasingly acknowledging the rising anger about AI development which is leading to the slowing down of infrastructure build-out. * SO WHAT? * Not only are people facing AI taking their jobs, even AI leaders have been suggesting that the tech could herald the end of the human race, the huge sums of money being spent on the build-out aren’t going to generate that many jobs long term and data centres will also suck up loads of energy and water whilst also generating pollution and other problems for local residents. Tech company management is talking a good game about better community engagement but I think they are going to have to do more than that to get locals on board. I think that resistance is only going to get stronger as more people see that resistance actually works in felling these giants so I think tech companies are going to have to work harder to enrich the communities that they find themselves in.

Microsoft rejects multibillion-dollar AI deal with UK’s Nscale (Financial Times, Keiran Smith, Rafe Rosner-Uddin and Stephen Morris) highlights another blow for the UK’s most valuable start-up that has ambitions for a $35bn stock market listing. Microsoft decided not to take up an option to more than double the size of its existing contract to rent computing power at a data centre site in Texas. * SO WHAT? * If Nscale doesn’t find another tenant, it will lose billions of dollars in future revenues. This follows on from Microsoft recently pulling out of a $3bn deal to lease computing capacity from Nscale’s data centre in Essex. I hope I’m not right but it seems to me that Nscale is toast. It feels like Britishvolt and Northvolt all over again. The problem is that the more we see the hyperscalers pulling out of projects, the weaker Nscale’s pricing power becomes and as the anger against data centres continues to rise, the more these potential tenants are going to be scared off.

Talking of being scared off, Nvidia-Backed Cohere Says IPO Timing Uncertain Despite Surging Revenue (Wall Street Journal, Kimberley Kao) shows that the Canadian AI company is keen to play down talk of a flotation despite booming revenues and an impressive funding round that just

got fresh backing from Nvidia and the Canadian government. It sells AI models to governments and companies in regulated industries who want to retain control of their data and where the tech is deployed. Its revenues have doubled every year for the past three years, so you can understand the excitement! Still, the company sounds like it’s being cautious about market timing – which sounds fair enough given the current climate!

Then in A&O Shearman invests $1.1bn in AI (Financial Times, Suzi Ring) we see that the Anglo-American law firm has laid out plans to invest a sizeable amount of money in AI over the next five years. Each practice is going to spend at least 3% of billable time on building AI tools for their area of law. A&O Shearman has been an early adopter of AI, having been the first customer of Harvey, the legal AI tech start-up that is now worth $15.5bn.

In Apple cuts staff AI usage in scramble to rein in costs (Daily Telegraph, James Titcomb) we see that Apple has decided to restrict employees’ use of AI in order to cut costs! It has now cut engineering staff’s daily usage caps from $300 a day to $200, with a view to cutting it to $100. It’s also looking to cut non-technical staff’s budgets from $100 a day to $25. * SO WHAT? * It seems that we are now entering the “AI thrift era” after a period of time where people have pretty much been let loose on it all. Companies are now counting the cost and Revolut said the other day that it has saved significant sums of money by migrating staff from using expensive “frontier” systems to cheaper Chinese models on its own servers. Other companies that have cut spend on employee use of AI include Accenture, Uber, Tesla, Microsoft and Meta! The era of “tokenmaxxing” is well and truly over!

UK prepares to extend Palantir’s NHS contract as it draws up plans for potential replacement (Financial Times, Chris Smyth, Laura Hughes and Lucy Fisher) shows that the UK government seems to be giving up on finding a viable alternative to Palantir for the moment and won’t be exercising a break clause to get an alternative provider in to work on the NHS’s Federated Data Platform. Ministers are apparently drawing up plans to launch a new procurement process that will try to “buy British”. That’ll give Palantir a two year stay of execution.

Consultancies show that graduates can actually benefit from the rise of AI (Financial Times, Lex) cites data from the Management Consultancies Association which shows that grad recruitment in the UK rose by 10% last year. Both McKinsey and Bain have already said they’ll be hiring more grads next year. Some of this is due to “catch-up” after a tricky few years but some of this is due to consultancies’ changing business models. Consultancies want juniors who can use AI and spot when it’s talking rubbish. Given that clients want to optimise the use of AI within their organisations, consultants who have soft skills to interact with them successfully are in big demand.

BT cuts almost 8,000 jobs amid sweeping cost-saving programme (The Guardian, Lauren Almeida) highlights another big company that’s been wielding the axe, according to its half-year results. It’s cut almost 8,000 employees since the end of March as part of a broader cost-cutting programme. Most of the cuts have been at its Openreach division.

Job adverts will have to publish salaries, ministers say (Financial Times, Delphine Strauss) reflects a desire by ministers to make job ads less ambiguous under a “say what you pay” law that is aimed at helping women and young job seekers. The government is keen to push pay transparency. The TUC leader said “Anyone who’s searched for a job knows how frustrating it is to read ‘competitive salary'” and says that it is “disrespectful”. There are more details to be hammered out here, but this is the direction of travel. Campaign groups say that salary transparency is one of the easiest ways to address the gender pay gap. There is also a push for banning employers asking potential recruits about their salary history at interview because they say that this just reinforces existing inequalities. * SO WHAT? * Well…I think that this is one of those things that sounds good in theory but is disastrous in practice. The “Competitive Salary”

thing on job adverts is indeed annoying but there are any number of reasons why employers do this. It could be that they don’t want to advertise their pay scales to competitors. It could be that they are quite flexible about who they take on and so want to keep the field broad in case they meet that amazing junior or exceptional experienced candidate. I could talk about this for days on end but, to my mind, salary transparency is highly toxic and is disastrous for morale. If you’re working hard and doing well but notice that the lazy-so-and-so sitting next to you is earning more whilst doing less, how does that make you feel? If you find that you’re earning 20% more than everyone else on your team because you were taken on in a “hot” jobs market, is wage transparency going to make you feel good?? I’d argue that at least not knowing means you won’t get fixated. I have been in the position of earning less and I just did my research, moved company and did it with gusto. I’d also argue that the only reason why the TUC guy is so supportive of transparency is because it will absolutely create discord – and that’s where the unions can step in. Unions survive by members paying subs. The more members they get, the more money they get and the more powerful they get. Unions want discord because it’s good for subs. Yes, they probably want to do right by their members – but members are their lifeblood and the more members they get the stronger they get. If you feel hard done by, I’d say don’t wait for someone to take pity on you – do proper research on what you’re worth and why and then find another company. Do not look back. In my entire career, I’ve only ever known one person get a bigger offer to stay and didn’t get subsequently managed out – but TBF he was offered a guaranteed £2m bonus to stay so that may be the exception 🤣. Once companies know you are eyeing the door, they can get quite sneaky about managing you out, so I say if you’re going to go, don’t tell anyone about it until you’ve signed on that dotted line.

In a quick scoot around some of today’s other interesting stories, Maersk shares fall despite improved outlook on surging data centre demand (Financial Times, Richard Milne) shows that the world’s second biggest container shipping group increased its profit guidance for the third time this year on booming data centre demand boosting global trade. However, its share price fell on Q3 results coming in below market expectations. Global trade has proved to be remarkably robust despite the decidedly unstable geopolitical landscape.

Then in Sony profits supercharged by new Spider-Man movie (Financial Times, David Keohane) we see that Sony was confident enough to lift its annual profit forecasts thanks to a 45% increase in Q2 operating profits – and they were boosted by the success of the latest Spider-Man movie. Its gaming division also did well, which is good news considering that it is trying to bring together its gaming, anime, film and music businesses to become a global content powerhouse. Gaming is likely to be boosted further by the impending release of Grand Theft Auto IV this month!

Wendy’s Rejects Trian’s $1.4 Billion Takeover Offer (Wall Street Journal, Heather Haddon) shows that the takeover offer from one of Wendy’s biggest shareholders was rejected. Wendy’s even went as far as putting into place policies to protect it from further hostile takeover bids. It wants to give its new CEO a proper go at turning the company around.

Back in the UK, Troubled housebuilder to shut offices and slash jobs in turnaround scramble (Daily Telegraph, Eir Nolsøe) highlights Vistry’s ongoing misery as the embattled housebuilder announced plans to close down half of its offices across the country and cut jobs as part of an effort to save £50m next year. Vistry has 4,500 staff. Tough times ahead…

Now I’m not a golfer but if I was, this looks like a good tactic to get some free golf lessons (but don’t get caught) 🤣!